FUNG PING YAN v. TANG LIN DICK DEREK

DCCJ 1396/2006

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 1396 OF 2006

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JUDGMENT

Background

1.  The facts of this case are rather unusual.  The Plaintiff ("Mr. Fung") acquired the right of development of Lots Nos. 2914A, 2914B and 2914 RP in Demarcation District No. 111 ("the Lots") in the New Territories under an agreement dated 30 October 1998 ("Development Agreement").  The Development Agreement was made between Mr. Fung and his company (jointly referred to in the Development Agreement as Party A) on the one part, and Mr. Tang Luk Hing 鄧祿興("Luk Hing") and Mr. Tang Tak Yuk 鄧德玉("Tak Yuk”), the registered owners of the Lots (who were jointly referred to as Party B in the Development Agreement) on the other part.  According to the recitals to the Development Agreement, an earlier agreement had been made between Luk Hing, Tak Yuk and Mr. Fung’s company for the development of the Lots and the Development Agreement was to supersede the earlier agreement.

2.  Under the Development Agreement, Mr. Fung, his company and the registered owners agreed to "jointly develop" the Lots.  The registered owners of the Lots agreed to apply to Government for building licenses for indigenous villagers’ houses in the New Territories, to erect buildings on the Lots, and to assign the Lots (and the buildings) to indigenous villagers.  Mr. Fung and his company agreed to pay the legal and other costs required for assigning these rights.  Under the joint development, Mr. Fung and his company were required within a period of 12 months from the issue of the Building License to construct village houses on the Lots and to apply to Government for Certificates of Compliance to enable further assignment of the Lots.  Luk Hing and Tak Yuk were to have the rights in an indigenous villager's house on Lot 2914B as a result of the joint development, whereas Mr. Fung and his company were to have the rights in the indigenous village houses on the remaining Lots Nos. 2914A and 2914RP.   The Development Agreement expressly provides that Mr. Fung and his company have the right to assign or transfer the right of development of Lots Nos. 2914A and 2914RP to third parties, and that Luk Hing and Tak Yuk have no right to object thereto or seek any relief in respect thereof.

3.  Mr. Fung also entered into a provisional agreement for sale and purchase ("Agreement") with the Defendant ("Mr. Tang") on 14 September 1998.  This is the controversial agreement in these proceedings.  Under the Agreement, Mr. Fung as vendor agreed to sell and Mr. Tang as purchaser agreed to buy the property described as "Yuen Long DD Lot 2914A indigenous villager's house and land with commencement of works paper issued".  The price was stated in the Agreement to be $1,150,000, of which $200,000 was payable upon signing of the Agreement, $800,000 was payable on or before 15 October 1998 upon the signing of a formal sale and purchase agreement, and a balance of $150,000 was payable on or before 15 November 1998, which date was further stated to be the date for completion of the sale and purchase of the property.

4.  It is not in dispute that Mr. Tang paid a total sum of $1,000,000 under and pursuant to the Agreement, being the first and second installments of the purchase price stated.  The parties did not complete the sale and purchase on 15 November 1998, but there is no evidence of any action taken by either Mr. Fung or Mr. Tang to pursue performance of the Agreement until 4 January 2006, when Mr. Fung instructed his solicitors to issue a demand for Mr. Tang's payment of the sum of $150,000 as the outstanding balance of the purchase price.  Payment was not made as demanded, and Mr. Fung commenced these proceedings for recovery.

5.  In his Defence, Mr. Tang claims that, first, Mr. Fung had agreed under the Agreement to sell Lot 2914A with the Certificate of Exemption in respect of building works, site formation works and drainage works issued by the District Lands Office pursuant to the Buildings Ordinance (Application to the New Territories) Ordinance, but that in breach of the Agreement, the Certificate of Exemption in respect of drainage works ("Certificate of Exemption") was not issued in respect of Lot 2914A on or before 15 November 1998, such that Mr. Tang was not bound to complete the purchase on 15 November 1998.  I shall refer to this ground of defence as "the breach of expressed term defence". 

6.  Mr. Tang also claims that Mr. Fung had failed to prove a good title to the property by producing all relevant title deeds and documents including the Certificate of Exemption on or before 15 November 1998. I shall refer to this ground of defence as "the good title defence". 

7.  Finally, Mr. Tang alleges that Mr. Fung's claim for the sum of $150,000 is time-barred, as the time limit for Mr. Fung to make such claim expired on 15 November 2004.  I shall refer to this ground of defence as "the time bar defence".

The breach of expressed term defence

8.  Clause 1.1 of the Agreement which identifies the property sold refers, literally, to "the Ding” （丁）on  Lot 2914A, with the land and the "commencement of work papers"（已出開工紙）.  Mr. Tang claims that the "commencement of work papers" can only mean the Certificate of Exemption, as he claims in his evidence that when he agreed to purchase the property and entered into the Agreement, he was assured by the estate agent with whom he dealt that the "Ding licence" had been issued, and that all approvals had been granted by government, such that he could commence to build the village house to which he, as an indigenous villager, was entitled.  He admitted that no one explained what "commencement of work papers" meant or referred to.

9.  According to Mr. Fung's evidence, the "commencement of work papers" meant the Building Licence, which had been issued by Government in respect of Lot 2914A on 11 March 1998 to Tak Yuk.  Mr. Fung explained that according to his understanding, the Building Licence had first to be issued, then the Certificate of Exemption had to be applied for, and upon the issue of the Certificate of Exemption, building works can then commence and finally a Certificate of Compliance can be applied for and issued.  The property can be further assigned after the issue of the Certificate of Compliance.  Mr. Fung claims that he had given a copy of the Building Licence to the estate agent for forwarding to Mr. Tang prior to the signing of the Agreement, and that he had also informed Mr. Tang through the agent that the Certificate of Exemption had not yet been issued.

10.  In my judgment, it does not make any material difference whether the "commencement of work papers" referred to in clause 1.1 of the Agreement refers to the Certificate of Exemption as Mr. Tang alleges, or the Building Licence as Mr. Fung alleges.  The reason is that on Mr. Tang's own evidence, he admits that he was advised by his lawyers on or before 15 October 1998 that the papers and title documents relating to Lot 2914A were incomplete, since the Certificate of Exemption was outstanding, but Mr. Tang decided nevertheless and despite such advice to proceed with the purchase.  As a result of such decision on his part, he made payment on 15 October 1998 of the sum of $800,000.

11.  Mr. Tang further went on to explain that his lawyers had informed him that on the day of completion scheduled to be 15 November 1998, he would have to pay the balance of the purchase price, but that the Certificate of Exemption was still outstanding.  Mr. Tang therefore instructed his lawyers to prepare a separate document to provide that the Certificate of Exemption had to be applied for within a year, and that the balance of the purchase price would only be payable then.

12.  Even if there was a breach on Mr. Fung's part in failing to produce the Certificate of Exemption pursuant to Clause 1.1, as Mr. Tang alleges, it is clear from Mr. Tang's evidence that he has waived such breach.  There is no evidence whatsoever of Mr. Tang having, at any time prior to service of these proceedings by Mr. Fung, made any complaint of the breach of Clause 1.1 or notified Mr. Fung of Mr. Tang's acceptance of such breach as discharging Mr. Tang from further performance of the Agreement.

13.  I fail to see how Mr. Tang can defend these proceedings on the breach of expressed term ground.

The good title defence

14.  There is no evidence whatsoever that Mr. Tang had, through his solicitors or in any other way, raised requisitions or objection to Mr. Fung's title in Lot 2914A.  If he had done so and refused to complete on 15 November 1998 on the ground that the Certificate of Exemption had not been issued or produced to Mr. Tang, that might have been the end of the matter.  Alternatively, if Mr. Tang or his solicitors had raised query as to whether Mr. Fung had any title or interest in Lot 2914A, that is something which Mr. Fung would have had to deal with. Mr. Fung's evidence is that he had actually produced the Development Agreement to Mr. Tang prior to 15 November 1998, whereby Mr. Tang or his solicitors would have been able to ascertain the relationship between Mr. Fung and the registered owner of Lot 2914A and Mr. Fung's rights under the Development Agreement. 

15.  In any event, Mr. Tang frankly admitted in his evidence in Court that on about 15 October 1998, before he made payment of the second deposit of $800,000 in respect of the purchase price, he was advised by his solicitors that title was not complete, that the Certificate of Exemption was outstanding, and that he should not proceed with the purchase.  He also admitted that he was informed by his solicitors that he had the right not to purchase, that there would be many problems if he should proceed to purchase and that he could back out of the Agreement.  Nevertheless, Mr. Tang admitted in cross-examination that he decided to proceed with the purchase and paid the sum of $800,000 to Mr. Fung.  In so doing, he must have accepted that Mr. Fung was in a position to transfer or procure the transfer of the title in Lot 2914A to him on completion.

16.  For the above reason, I find that Mr. Tang has no defence on the good title ground.

Any other defence of breach?

17.    As pointed out above, Mr. Tang admits that after receiving his lawyer's advice regarding the outstanding Certificate of Exemption and the advice against the purchase, he had decided to proceed on the basis that the Certificate of Exemption had to be applied for within 12 months, and that the balance of the purchase price would only be payable thereafter.

18.  The parties only differ in their evidence as to who was to be responsible for dealing with the application for the issue of the Certificate of Exemption and the Certificate of Compliance after October 2003.  According to Mr. Tang, this was Mr. Fung's responsibility, but he failed to do anything and Mr. Tang eventually assumed the responsibility himself.  According to Mr. Fung, it was Mr. Tang's responsibility to deal with the applications.  According to Mr. Fung, he had on a number of occasions pressed Mr. Tang's lawyers as to whether and when the Certificate of Exemption, which Mr. Tang was supposed to deal with, had been issued, but the answer he obtained from the lawyers was that Mr. Tang could not be contacted.  Mr. Fung's evidence is that Mr. Tang had been out of Hong Kong for a long period of time.

19.  Having considered the parties' evidence, although Mr. Tang was evasive in relation to dates and some particular documents and when he commenced building works, I regard his evidence as substantially supporting Mr. Fung's case in relation to the parties’ agreement to postpone completion and payment of the balance of the purchase price until after the issue of the Certificate of Exemption and the Certificate of Compliance.  The fact that neither party took any step or action to press for completion or pursue payment of the balance of the purchase price between October 1998 and January 2006 further demonstrates their agreement.  Although Mr. Tang claims that he had stipulated that the Certificate of Exemption should be applied for within 12 months of October or November 1998, and that Mr. Fung had not done anything to obtain the Certificate of Exemption and the Certificate of Compliance, which were only issued pursuant to his own involvement, there is no evidence that, prior to the institution of these proceedings in 2006, Mr. Tang had ever complained about Mr. Fung's breach or delay, and if there was any breach or delay on Mr. Fung's part, there was certainly no evidence of Mr. Tang taking any step to terminate the Agreement by way of acceptance of any repudiatory breach on Mr. Fung's part.  Nor has Mr. Tang pleaded breach on Mr. Fung's part in failing to apply for the Certificate of Exemption within 12 months from October or November 1998.  He raised this for the first time in the course of his oral testimony in Court.

20.  The parties do not dispute that the Certificate of Compliance was issued in October 2003.  There is no evidence of the registration of any Certificate of Exemption at the Land Office in respect of Lot 2914A, but Mr. Tang claims that he had applied for it and that it had been issued. 

21.  The parties accept that from 2002 to 2003, Mr. Fung "lost his liberty".  I take this to mean that he was in detention during this time.  According to Mr. Fung, he only found out from Tak Yuk's son  in 2005 that the Certificate of Compliance in respect of Lot 2914A had been issued, and that Lot 2914A had been assigned to Mr. Tang directly by Tak Yuk.  Accordingly, Mr. Fung instructed his solicitors to issue a demand to Mr. Tang in January 2006 for payment of the balance of the purchase price.

22.  On Mr. Tang's part, he claims that after the Certificate of Exemption had been issued, he required the assistance of Tak Yuk to obtain the Certificate of Compliance and to enable the transfer of Lot 2914A to him upon payment of the premium to Government which was required under the Building Licence. Mr. Tang admits in his evidence in court that he was informed by Tak Yuk that his rights had been transferred to Mr. Fung, and that the sum of $150,000 was payable by Mr. Tang to Mr. Fung.  According to Mr. Tang, in order to secure the release of the Certificate of Compliance from Tak Yuk and to enable the transfer of Lot 2914A to himself, he paid a sum of $140,000 as a fee to Tang Wang Jarn 鄧容燦("Jarn"). Jarn is the son of Luk Hing, one of the registered owners of the Lots, and a party to the Development Agreement.  Although there was produced in court copies of an agreement for sale and purchase and of an Assignment of Lot 2914A (both dated 22 October 2005) from Tak Yuk to Mr. Tang at a stated price of $2,000,000, Mr. Tang admitted in court that this sum was actually never paid to Tak Yuk.  The only sum which was paid by Mr. Tang in 2005, as evidenced by an acknowledgment of receipt dated 17 February 2005, was the amount of $140,000 from Mr. Tang to Jarn.  In his evidence, Mr. Tang maintained that the sum of $140,000 paid to Jarn was not paid by him as the balance of the purchase price payable under the Agreement with Mr. Fung, but as a fee to procure Tak Yuk's release of the Certificate of Compliance to enable the assignment of Lot 2914A to himself upon payment of the necessary premium to Government.

23.  Having thus obtained legal title to Lot 2914A in October 2005, Mr. Tang refused payment of the balance of the purchase price of $150,000 to Mr. Fung, as he had contractually agreed to do under the Agreement.  As at October 2005 and January 2006, the Agreement was still subsisting between Mr. Fung and Mr. Tang, never having been terminated by either party.  This remained the position at the time of commencement of proceedings in March 2006.  I cannot find any evidence of any other breach by Mr. Fung which had been accepted by Mr. Tang as having discharged him from further obligations under the Agreement.  Nor has Mr. Tang raised any counterclaim for damages in respect of any alleged breach by Mr. Fung.

The time bar defence

24.  Mr. Tang claims that under the Agreement, completion of the sale and purchase was to take place on or before 15 November 1998 when the balance of the purchase price, in the sum of $150,000, was to be paid by Mr. Tang to Mr. Fung. He claims that since Mr. Fung only commenced proceedings in March 2006 for recovery of this amount, his claim for payment is time-barred.

25.    In his Reply, Mr. Fung claims that completion of the sale and purchase of Lot 2914A only became due on or about 11 October 2003, when the Certificate of Compliance was issued, and that the sum of $150,000 became due for payment within a reasonable time after the scheduled completion, on 11 November 2003.

26.  It is clear from the preceding paragraphs of this Judgment that after having considered all the evidence and in particular after hearing Mr. Tang's testimony in court, I accept that the parties had agreed to postpone completion of the transaction and payment of the balance of the purchase price of $150,000 under the Agreement from 15 November 1998 to the issue of the Certificate of Compliance.  The Certificate of Compliance having been issued in November 2003, and Lot 2914A having been assigned to Mr. Tang in October 2005, Mr. Fung was entitled to demand payment of the balance of the purchase price of $150,000.  Mr. Tang's default in payment in January 2006 upon demand being made is the operative breach.  Failing to receive payment from Mr. Tang, Mr. Fung issued the Writ on 21 March 2006.  I find on such evidence that his claim is not time barred, and Mr. Tang's defence on this ground fails.

27. Counsel for Mr. Tang complains that Mr. Fung's plea in the Amended Reply, that completion was due on 11 October 2003 by reason of the issuance of the Certificate of Compliance, and that payment of the balance of the purchase price of $150,000 was due within a reasonable time thereafter on 11 November 2003, is inconsistent with the plea in the Statement of Claim that the balance of the purchase price was payable on or before 15 November 1998.  He argued that the Court should ignore the plea in the Amended Reply. 

28. It is clear from the authorities that the purpose and object of pleadings is to fairly inform the other side and the court of a party's case, identifying the issues and the true extent of the dispute between the parties (see, for example, Wing Hang Bank Ltd. v. Crystal Jet International Ltd. [2005] 2 HKC 638).  Whilst the courts recognize that unpleaded issues should not be slipped in when evidence is being given, it is ultimately for the court to be guided by what is fair and just in the circumstances.  In this case, the date of the issue of the Certificate of Compliance; the averment of postponement of completion and payment of the balance of the purchase price to the issue of the Certificate of Compliance; the averments that completion became due on 11 October 2003 and payment of the balance of the purchase price fell due a reasonable time thereafter; and the claim that the time under the Limitation Ordinance commences to run from 11 November 2003, are all pleaded in the Amended Reply.  Mr. Tang and his lawyers therefore knew the case which they had to meet.  There is no question in this case of any departure or radical departure from an issue  put before the court by the pleadings, and no question of Mr. Tang's preparation of the defence having to be different by virtue of the facts pleaded in the Amended Reply. 

Conclusion

29. For the above reasons, I will allow Mr. Fung's claim for the sum of $150,000 to be paid by Mr. Tang, together with interest at judgment rate from 11 January 2006 (the date of payment demanded by the letter of 4 January 2006).

30. I will further make an order nisi that Mr. Tang is to pay the costs of these proceedings, to be taxed if not agreed, with certificate for counsel.